Very interesting, but definitely not surprising.

Note: This is U.S. data. Sorry for not clarifying sooner!

“Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.”

And let’s just add insult to injury:

“These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.”

Via Big Government

It’s amazing how some roles have such a big difference in pay, such as Clergy at $70,000 in the government, versus around $40,000 in private sector.

Or Graphic designer at $70,000 versus $46,000 in the private sector.

But maybe the work is different?

I can see that for IT because to me, they’re sort of ambiguous.

IT in general is fairly new as an industry, and we don’t have exact definitions as to what each role does.

A computer systems analyst to someone might be a computer support specialist to another.

But to me, they are two completely different job roles and tasks, which can be subdivided even further depending on what applications we’re talking about.

Then you factor in the actual tasks involved, and setting up a computer for an employee is a different job from doing IT help desk support to troubleshoot a system or any kind of specialized software.

I thought it’d be a fun exercise to do a comparison between working for a company and working for yourself.

Salary:

The general rule of thumb is that you work for yourself if you can make more money — at least increasing your salary by 50%.

So if you normally earned $50,000 before, you should be able to earn at least $75,000 if you go out on your own.

That extra $25,000 is to cover retirement, healthcare and whatever else you have to deal with that a company would handle otherwise.

If it’s for the same amount of money, I don’t really see the point unless you really hate being under someone else’s thumb.

From my perspective:

They used to charge $150 – $180/hour for my services.

I cut out the middleman, and went from earning $30/hour (my employee salary) to $90-$130/hour.

I make more money, and I charge the client less.

Time:

In a lot of cases, you work MORE because you have to do your job and also do all the other tasks in the company like handling the books, reading contracts and dealing with the client directly.

If you run your own business you have to handle everything from vendors to customers to your own employees.

But it’s fulfilling in the sense that you know it’s directly affecting you and your earnings, so you are more motivated to do the work happily.

From my perspective:

It is the total opposite for me.

I actually work less now, than I ever did with a consulting company.

The reason being that I used to work 50-60 hours a week with a consulting company, but was only paid for 40.

I was working all that over time for free, PLUS filling out all those performance tracking and project review debriefings, all of which took

Now, I work no more than what I am allowed to bill, which ranges from 36 – 40 hours a week.

Over time has to be approved directly by the client, or I don’t do it.

And if you don’t want to go on a project that makes you travel a lot, you can say “No, I’m not going.”

With a company, you don’t have a choice.

Healthcare:

Have to cover your own, or get your own private insurance plan.

From my perspective:

Doesn’t really apply to me as I live in Canada. My out-of-pocket expenses are around $600/year which include seeing the dentist twice, and buying prescription pills.

I am actually saving money, because I wasn’t even taking full advantage of the company plan to begin with.

Retirement:

Have to handle it all on your own, but this was sort of what I did before as well — contributed to a retirement plan AND saved on the side.

Office Supplies:

Have to handle it all on your own, but you don’t need much if it’s just you.

And you can buy exactly what you want, instead of bitching about what they bought!

Resources:

You’re the only resource, but there’s an informal network of other freelancers who are more than willing to help you out.

Paperwork, Taxes and Deductions:

Lots of paperwork to deal with for your company is the downside, but now:

• you have control over what is being spent and what isn’t
• you don’t have to deal with someone to approve any purchases
• you benefit directly from the tax breaks, rather than the company taking them

When your laptop dies, you don’t have to ask anyone for approval to get a new one (and by new, I mean refurbished).

So if my laptop dies, I just buy another one under the company.

19% Flat Rate

I think it’s a BONUS that I only pay 19% as a flat rate in taxes for my small corporation’s earnings.

My company can earn up to $500,000 before being charged more, but under $500,000, it’s considered to be a small business.

If I were to earn that kind of money through a company, I’d be paying at least 40% in taxes.

$20,000 in dividends each year

I take the money out as dividends each year, to a maximum of $20,000 (it’s all I need anyway), and as a result, I don’t pay exorbitant personal income taxes.

$20,000 might not seem like a lot, considering that in 2009 I spent around $30,000… however, I also have some of my living expenses written off under the company.

No sales taxes paid & expenses are deducted from gross taxable income

If I buy something for the company, I don’t pay the sales tax AND it’s an expense before taxes for my company, so I save on the income tax as well.

Check out the comparison chart:

Let’s assume I buy a $100 item:

As an individual, I’d pay $113 with 13% sales tax, but under my corporation (if it’s a legitimate expense), I pay $81.

Naturally, I can’t buy anything not related to consulting, so a new wardrobe, or anything that is not used for business, cannot be claimed.

This is also not an excuse to go on a spending spree because of the savings, because you are still spending the company’s money, which is eventually YOUR money and what you buy is not “free”, it’s just cheaper.

This is also the reason why I bought a used minivan instead of a fancy new car for the company.

THE DOWNSIDES

• Fairly risky: may not work for large parts of the year (hello 2009?)
• May have to travel a lot and/or cover expenses which lowers my earnings
• No paid vacation, sick days or leave — it affects your income directly
• Managing myself & the client’s expectations
• Have to do all the work of a company by myself on my off time, for example:

• • Filing taxes and other statements quarterly
  • Bookkeeping — My budgeting spreadsheet comes in handy here
  • Analyzing my cash flow and expected income
  • Invoicing and Accounts Receivables — Making sure I get paid
  • Scheduling — If I travel, I need to make sure I am on top of the bookings

——————————————————————————

So I hope I’ve given a brief but comprehensive Pros and Cons list of both: working for a company or for yourself.

Personally, it’s a much better and easier deal to be a freelancer than to work for a company, especially as an IT consultant who works on projects rather than really being an employee.

I thought it’d be a fun exercise to do a comparison between working for a company and working for yourself.

Salary:

It’s steady income, and you can expect a paycheque deposited into your account bi-weekly like clockwork.

Time:

Sure, you may work some overtime here and there, but for the most part your workweek is pretty good.

35 – 40 hours a week, and you even get paid leave in some cases, like sick days, paid vacation, personal days, or whatever your company might offer.

In consulting, if you don’t have a project, then you’re “benched”, otherwise lovingly referred to as “beached”.. meaning that you sit at home and wait for the next project, but you’re paid to do so.

Healthcare:

Usually covered by your employer, giving you a whole range of great benefits that you otherwise may not have had the cash to pay for.

This I hear, is especially helpful if you live in the States, but not so much in Canada, as we are under the universal healthcare plan.

Retirement:

Again, an employer sometimes generously offers a 100% match!

Which means whatever you put into the retirement plan, they’ll match up to a certain percentage.

If you put in 3% of your salary, they give you 3% — it’s free money and a great perk of working for a company.

Office Supplies:

Need a pen? Paper? Huge industrial photocopier? Scanner? Huge projector? For the most part, everything is available at your fingertips, and if it isn’t, you can request it.

You don’t have to worry about having an office to work at, a good desk, a locked cabinet, buying your own computer or having a chair to sit in.

Resources:

Lots of people around you to pick the brains of, and you can lean and ask for help from anyone in your department. At least, in theory.

Paperwork, Taxes and Deductions:

Automatically taken off your paycheque.

You don’t have to worry about contributing to any of it, the company has everything set up automatically, and they just deliver a summary to you at the end of the year, which makes your taxes super simple.

If you need to change something, you just call HR.

You don’t have to deal with any of the nuances of being self-employed — you get your expenses reimbursed in full with (barely) any questions asked.

THE DOWNSIDES

• Having to work overtime for free (in most cases)
• Lots of seemingly redundant & unnecessary paperwork for performance reviews
• Never having autonomy to do what you want without deferring to your manager
• Office politics are pettier, because you’re all employees jostling for raises
• Not getting reimbursed or paid on time

Alissa from The Corporate Chick asked me:

When you were little, what did you want to be when you grew up?

Completely opposite of what you do now?

Hell to the yes.

When I was little, I wanted to be a:

• teacher
• ballerina
• something in marketing or advertising

Now, I’m an IT consultant. Go figure.

I’m just happy that I found what I like to do without a lot of soul searching for 30 years.

What did you want to be when you were little?

Some eye opening statistics.

I have a note on the fact about IT worker salaries at the bottom.

Click on the image to make it larger.

Update: I am done with comments.

It’s my opinion and my blog.

It’s how I feel, it’s what I’ve experienced and it has been a hot topic of discussion among most of my consultant colleagues (most of whom agree) as well as CONFIRMED by outsourced consultants who end up moving here and working here.

If I told you: China outsourcing their work to England is really crap, because they don’t know their stuff, there’s a time difference, they don’t speak Mandarin, and don’t like to say NO all the time, would you be as angry?

If I worked in India, I’d learn how to shut up and work in that beehive mentality.

If I worked in China or even Japan, I’d learn pretty fast that women are not really appreciated as business women with ideas and opinions.

If I worked in France I’d surely be mocked for my awful accent.

I’d have to ADJUST my own attitude towards those cultural attitudes, and this is not what they do when they work with North American companies and it is FRUSTRATING.

Just think about it. Some of you are getting mad just because it’s India or Brazil that are the largest receivers of offshore IT consulting.

The amount of money makes people lie to get it, even if they haven’t earned it.

I’m really talking about liars in general, and outsourcing offshore seems to be rife with them, because of the amount of money they can earn in an hour compared to what they can earn in their own country.

And it happens at all levels, not just in this situation.

That was my only point. Remove “India and Brazil” from my notes below and see if you feel angry after.

So maybe in YOUR lines of work in IT, and the programming you deal with, they aren’t earning $60 – $80/hour for typing some code.

So yeah, maybe they know their stuff in other IT areas.

But not in mine, and it’s from MY perspective that I am writing from.

I have seen all evidence to the contrary BECAUSE they can generally earn triple the amount than in other programming areas.

On any given project, I noticed a ratio of about 4 offshore programmers trying to do the work of what ONE onshore programmer can do. 

They simply don’t have the experience.

That comparison between American and Indian IT workers is taken out of context.

As an IT worker myself, in (North) America, I could regale you with stories about how clients thought they could cut corners and hire an Indian (or Brazilian, another top country) IT firm to do their work for much cheaper.

They thought they could just outsource all the coding and be done with it but ended up spending more money in the end just to finish the project, than if they had started and done it the correct way the first time.

It’s like buying a pair of cheap plastic shoes and then realizing your feet are blistered after a week of wearing them and the heel broke off, so you go back and buy the expensive pair of leather shoes to save your feet.

You just wish you had spent the money up front instead of wasting time and buying the plastic pair in the first place.

These are the most common problems with outsourcing:

Things take a long time to materialize from them. Or not at all. One client waited 3 months before realizing they were doomed, with 2 months left to complete the project.

They couldn’t understand simple and clear specifications and took them a week to understand and code, rather than the half day.

They don’t have the experience but they lie and say they do.

The trick is that they send Indian IT workers over to Canada or the U.S. for a week or two, and then when they go back, they claim their workers worked for the client on-site for the entire duration of the project.

They work in a beehive mentality, so nothing can get done independently with them, without explicit approval from their head project manager who knows jack about the system.

They work in a different time zone which screws both sides because you have to wait 24 hours before getting a response, which is not only frustrating, but holds up the project for the littlest changes.
They tell you it’s “on the way” and then we play the frustrating miscommunication game until we realize that they have no idea about what to do.

They do this instead of admitting that they don’t understand the first time around, and don’t want to ask for clarifications.

So those North American IT workers earning $0.13 to their $0.025 is WELL DESERVED in my opinion.